The limitations of the global healthcare industry have been brought to light by the COVID-19 pandemic, and governments around the world are now trying to make up for the inadequacies. Primarily due to extensive investments and governmental aid provided to the U.S. healthcare industry, the nation is now ahead of schedule in a nationwide mass coronavirus vaccination program. Also, the Biden administration is taking active steps to reinstate the Affordable Care Act, which is expected to boost the domestic healthcare industry. Investors’ interest in healthcare stocks is evidenced by Health Care Select Sector SPDR Fund’s (XLV) 19.2% returns over the past six months.
According to National Health Expenditure (NHE) projections, national health spending is expected to hit $6.2 trillion by 2028. And because most people are expected to reschedule their delayed, non-emergency health care and operations in the near term, healthcare companies are expected to see solid growth this year. Furthermore, as the country adopts precautionary steps to ensure no fourth wave of coronavirus infections, these efforts should also contribute to the healthcare revenue industry's growth in coming quarters.
So, it is wise to bet on healthcare companies Laboratory Corporation of America Holdings (LH), Quest Diagnostics Incorporated (DGX), and Charles River Laboratories International Inc. (CRL), They are well positioned to capitalize on the industry tailwinds.
Click here to checkout our Healthcare Sector Report for 2021
Laboratory Corporation of America Holdings (LH)
Life sciences company LH provides clinical laboratory and end-to-end drug development services. It provides services that range from advanced diagnostic tests to helping launch new drugs and offering new perspectives through data. The company serves managed care organizations, biopharmaceutical companies, governmental agencies, physicians and other healthcare providers, among others.
LH’s revenue for the fourth quarter ended December 31, 2020 was $4.50 billion, which represents a 52% year-over-year increase. Its gross profit increased 132% year-over-year to $1.90 billion. LH’s operating income came in at $1.30 billion, indicating a 268.4% year-over-year increase. Also, its net income was $938.3 million, up 313.2% year-over-year, and its EPS increased 311.1% year-over-year to $9.62.
Analysts expect LH’s EPS to improve 119.8% year-over-year to $5.65 for the quarter ending June 30. LH surpassed consensus EPS estimates in each of the trailing four quarters. Its $3.91 billion revenue estimate for the quarter ended March 31 represents a 38.5% year-over-year increase.
This month, LH announced the availability of the Pixel by LabCorp COVID-19 PCR Test Home Collection Kit for small businesses. It’s an initiative aimed at providing fast, convenient, and reliable testing for companies with as many as 120 employees. LH Employer Services currently provides COVID-19 testing and vaccination services to larger organizations and communities. This is expected to boost the company’s revenue in the near- to medium-term . The stock has gained 49.3% over the past year and closed yesterday’s trading session at $262.71.
LH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Growth, and a B grade for Sentiment and Quality. We’ve graded it for Momentum, Stability, Value as well. Click here to access all of LH’s ratings.
LH is ranked #3 of 57 stocks in the Medical- Diagnostics/Research industry.
Quest Diagnostics Incorporated (DGX)
DGX provides diagnostic testing, information, and services in the United States and internationally. It develops and delivers diagnostic information services, such as routine testing, non-routine and advanced clinical testing, and anatomic pathology testing. The company operates through two segments—Diagnostic Information Services and Diagnostic Solutions.
For its fiscal year 2021 first quarter, ended March 31, 2021, DGX’s total revenue increased 49.3% year-over-year to $2.73 billion. Its operating income increased 277.1% year-over-year to $660 million. The company’s net Income increased 373.7% year-over-year to $469 million. And its EPS for the quarter came in at $3.52, up 375.7% year-over-year.
DGX’s EPS and revenue are expected to increase 102.1% and 29.7%, respectively, year-over-year for the quarter ending June 30, 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters.
Last month, Zora Biosciences Oy, a company with more than a decade of experience in mass spectrometry-based lipid biomarker discovery and development, signed a non-exclusive license agreement with DGX for its patented ceramide-analysis technology. DGX is expected to develop a test service based on Zora's ceramide technology to help identify patients at risk for cardiovascular-related disease and death. If successful, the service could help many patients and drive increasing demand for its test service. The stock has gained 10.5% so far this year to close yesterday’s trading session at $131.68.
DGX’s POWR ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has a B grade for Growth, Quality, and Value. In addition to the POWR Rating grades we’ve just highlighted, one can see DGX’s ratings for Sentiment, Stability, and Momentum here.
DGX is ranked #7 in the same Industry.
Charles River Laboratories International Inc. (CRL)
CRL is an early-stage contract research company that provides drug discovery, non-clinical development, and safety testing services. The company offers laboratory animal medicine and science and has developed a portfolio of discovery and safety assessment services. It operates through three segments—Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Support (Manufacturing).
CRL’s $79 million in net sales for its fiscal 2020 fourth quarter, ended December 26, 2020, represents a 14.4% year-over year rise. Its operating income has increased 18.5% year-over-year to $128.93 million, while its net income for the quarter came in at $143.20 million, up 78.2% year-over-year. Its EPS has increased 75.6% year-over-year to $2.88.
For the quarter ending June 30, 2021 analysts expect CRL’s EPS and revenue to increase 34.8% and 29.4%, respectively, year-over-year. Also, it surpassed the consensus EPS estimates in each of the trailing four quarters.
On April 6, CRL and Valence Discovery agreed on a strategic partnership to provide clients access to Valence’s artificial intelligence platform for molecular property prediction, generative chemistry, and multiparameter optimization. This alliance reflects CRL’s commitment to enhancing its portfolio of innovative technology solutions. The stock has gained nearly 139.2% over the past year to close yesterday’s trading session at $334.80.
It’s no surprise that CRL has an overall B rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Sentiment and Growth. Click here to see the additional POWR Ratings for CRL (Stability, Value, Quality, and Momentum).
CRL is ranked #12 in the same industry.
Click here to checkout our Healthcare Sector Report for 2021
LH shares were trading at $266.59 per share on Thursday afternoon, up $3.88 (+1.48%). Year-to-date, LH has gained 30.97%, versus a 12.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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